Review of the Enacted Budget
TABLE OF CONTENTS
To the People of the State of New York:
In a time of
relative prosperity, this year's State budget has reached a new
low, in both process and result. It was a failure in terms of timeliness,
openness and thoughtfulness. The negotiations were carried out in
the traditional closed, three-way process and were marked by a level
of acrimony and recrimination unusual even for Albany. The mid-summer
"conference committee" process was no more than a bad
joke -- a charade carried on while everyone knew that the real decisions
had already been made, or were being made, by three men in a room.
Not surprisingly, the results were bad. In a period of relative
financial ease, the leaders nevertheless found need to stuff the
budget with all sorts of manipulations, one-shots and other tricks.
These actions are objectionable even under dire fiscal circumstances
-- they are inexcusable in the current environment.
The budget crafters rallied around the Governor's proclaimed conviction
that spending growth should be kept below inflation. Various manipulations
were contrived to meet this goal, at least in the General Fund ledger,
but the truth is that State spending is rising at about one and
a half times the rate of inflation. A positive goal of reserving
the year-ending $1.8 billion surplus was accomplished, but only
after employing nearly $600 million in one-shots. It would have
been wiser and more straightforward to avoid these actions and instead
reserve less of the surplus. The funds carried over will ease fiscal
conditions in the upcoming year or two, but these funds are not
recurring resources and the State continues to face a structural
imbalance. Estimated budget gaps are $2.8 billion in 2000-01 and
$4.6 billion in 2001-02.
New tax cuts were enacted, but only at the expense of delaying the
promised elimination of the sales tax on clothing. In fact, as historically
counted by the National Conference of State Legislatures, this year's
budget action would have constituted a tax increase, because the
sales tax deferral was greater than the new cuts added. Tax cuts
enacted without a solid plan and paid for by sweeping financial
problems under the rug may have unintended and difficult consequences
in the long run. It would have been better to stand by the promises
The budget contained positive restorations for education and other
programs, but in almost every case, the real news was not nearly
as good as claimed in the press releases. For example, there was
an incremental increase in revenue sharing for local governments,
but the funds were delivered in part through an artificial accounting
spin-up while the budget reneged on a promise to evaluate and reform
the program. Further, the Legislature failed to address the fiscal
difficulties many local governments continue to experience. Nassau
County's severe financial and management problems were papered over
by giving them a new tax without any oversight, despite an egregious
record, making the need for such oversight painfully obvious.
Even with a record increase in school aid, the budget failed to
materially advance either efficiency or equity in the aid distribution.
As usual, the formulas were manipulated until the traditional regional
shares were produced. Most needy school districts would have done
better if the Legislature had simply rejected the Governor's cuts
and allowed the present law formulas to operate along with the planned
expansion of the LADDER programs. The lateness of the budget also
resulted in higher-than-necessary taxes in some districts and clearly
diminished the effectiveness of the incentive aid programs it contains.
For higher education, a series of additions were trumpeted, but
most only partially covered the cuts of earlier years. In truth,
SUNY and CUNY have been subjected to large budget cuts this year.
The small additions for faculty, opportunity programs and child
care are completely overshadowed by large unfunded costs for collective
bargaining increases, inflation and at SUNY, a sizable hospital
The State simply cannot afford to follow this irresponsible path,
staggering from year to year without a plan as New Yorkers face
an enormous debt burden and the embarrassing annual budget debacle
leaves fundamental problems unaddressed. If there is a silver lining
anywhere to be found in this year's dismal performance, it may be
that New Yorkers have had enough, and that everyone involved in
the process finally decides this cannot go on.
H. Carl McCall,
All Funds spending increases by $2.7 billion to $73.3 billion, representing
growth of 3.8 percent. Reported General Fund spending increases
2.4 percent to $37.4 billion. However, spending is affected by a
number of accounting transactions that masks underlying spending
growth. When these accounting transactions are excluded, General
Fund spending increases 3.5 percent, or 1.4 times the rate of projected
inflation, and State Funds spending goes up 4.2 percent, or 1.8
times the inflation rate.
Most of the 1999-00 spending increases, when compared to the Executive
Budget, are driven by current law and the legislative rejection
of proposed cuts in education and Medicaid, rather than by program
expansions. Even the large education aid increase was driven by
the phase-in of multiyear programs and by general growth in current
school aid formulas. The General Fund budget was balanced with virtually
no spending cuts.
Multi-Year Impact of the Budget
The gap estimates presented in the Executive Budget were understated
by more than a billion dollars due to the inclusion of unspecified
savings and the exclusion of collective bargaining costs. The enacted
budget further increased projected gaps.
The State Comptroller estimates future budget gaps will be approximately
$2.8 billion in 2000-01 and $4.6 billion in 2001-02. These gaps
remain a serious problem for the State. The underlying structural
problem is even more apparent without the planned use of the surplus.
Without the use of the surplus, these gaps grow to $3.4 billion
in 2000-01 and $5.8 billion in 2001-02.
One of the positive elements of the enacted budget is the planned,
year-end fund balances. In addition to setting aside the $1.82 billion
in surplus, the Debt Reduction Reserve Fund deposit increases by
$250 million. Reserves, including amounts for future welfare needs,
reach nearly $3.4 billion, representing 8.6 percent of General Fund
receipts. However, more than one-half of the planned reserves, the
$1.82 billion surplus, is expected to be used for budget balancing
in 2000-01 and 2001-02.
The level of non-recurring resources used in the enacted budget
increases ten-fold from $64 million last year to nearly $600 million
in 1999-00. This is particularly disturbing given the current robust
economy. The use of significant one-time revenues to balance budgets
was common practice during economic recessions. The use of non-recurring
resources to fund ongoing spending exacerbates future budget imbalance.
A $913 million, 7.8 percent
state aid increase is provided for the 1999-2000 school year (instead
of the $269 million increase proposed by the Governor), bringing
total aid to more than $12.6 billion. The Legislature restored the
multiyear early childhood and other programs known as the LADDER
Even with the large increase
in aid, the budget failed to materially advance either the efficiency
or the equity of the aid distribution, and most high needs districts
would have done better under present formulas without the budgets
modifications. The lateness of the budget may have also resulted
in higher than necessary taxes in many districts and diminished
the effectiveness of the LADDER incentive programs such as pre-kindergarten
Newly required school "property
tax report cards" will contain inaccurate information if the
State budget continues to be late. It is likely that schools will
have to guess about prospective property tax rates without knowing
how much state aid they are receiving. Next year, for example, a
budget would have to be enacted far enough in advance of the April
22 data submission deadline for school districts to correctly calculate
property tax rates.
$150 million was added to the
Executives proposal, the majority of which ($103 million)
restored a proposed TAP cut. Most of the other additions, including
those for opportunity programs and more full time faculty, were
smaller than last years restorations (subsequently vetoed).
SUNY state-operated institutions and CUNY senior colleges lack funding
for collective bargaining increases, normal inflation and other
costs. These unfunded costs (totaling $58 million at SUNY and $33
million at CUNY) far outweigh the additions for full-time faculty
lines, opportunity programs and child care ($5.6 million for SUNY
and $4.3 million for CUNY).
A $77 million shortfall at
the SUNY Hospitals has resulted in an impoundment of appropriations
by the Governors Budget Director. This action requires the
SUNY Board of Trustees to choose between spending reductions at
the campuses (reallocating student tuition revenues) or the hospitals
(with patient service implications and causing further revenue problems).
A tuition increase has also been discussed. Without additional State
funding, the hospital shortfall can only be met by taking funds
from other purposes or by using temporary solutions such as borrowing.
The independent colleges and
universities received incremental increases for the HEOP opportunity
program and Bundy direct institutional aid. An increase in the maximum
TAP grant sought by these institutions was not provided and the
$4,125 maximum grant today covers only about 25 percent of average
tuition compared to 40 percent in 1990 and 60 percent in 1974.
The enacted budget included
a multi-year tax cut package that costs $375 million when fully
implemented. The major components of this package include a tax
rate reduction for banks and insurance companies and an enhancement
of the State Earned Income Tax Credit for lower-income working families.
The remaining $100 million is used for 25 different small, extremely
targeted tax cuts that have questionable job creation potential.
New tax cuts were enacted while
implementation of the permanent sales tax exemption for clothing
was delayed for three months. In fact, as historically counted by
the National Conference of State Legislatures, this years
budget action would have constituted a tax increase of $42 million,
because the sales tax deferral was greater than the new cuts added.
A small, year-to-year increase
in revenue sharing aid was provided, but a statutorily constituted
task force to evaluate the formula and institute reforms failed
to issue its report. Additionally, an accounting spin-up was also
used to provide one-time relief to 14 cities. County governments
face increased costs and reduced reimbursements for Medicaid, social
service and criminal justice programs.
Despite continuing indications
of fiscal stress among local governments, the legislation proposed
by the State Comptroller, in conjunction with the Governor, to address
that issue was not passed. The legislation would have promoted fiscal
stability among local governments by providing an early warning
of fiscal stress and a standby system for oversight and relief when
local situations warrant it.
The budgets response
to Nassau Countys fiscal problems adding a new tax
without any additional State oversight is only a stopgap
solution. The Comptrollers Office will continue to monitor
the situation in Nassau County, but it appears that a stronger oversight
mechanism or supervisory board will be necessary to address the
Health and Social Services
The enacted budget includes
no new Medicaid cuts. Almost all of the old cost containment measures
expired for one quarter but were later reinstated as of July 1,
1999. In contrast to proposed provider cuts of $848 million proposed
in the Executive Budget, providers are estimated to receive additional
Medicaid revenues of $206 million due to the changes.
Welfare caseloads continue
to decline. The federal funding windfall will be used for State
and local government fiscal relief, child care funding increases,
and further deposits to the contingency fund.
New York is estimated to receive
approximately $25 billion over the next 25 years from the tobacco
settlement. The final budget created a fund to receive monies, but
decisions on its use were deferred.
Debt and Capital
The five year capital plan
will be updated for changes made in the enacted budget on or before
November 1, 1999. Preliminary analysis indicates that capital spending
increases by $328 million. Most of this added spending results in
The enacted budget also includes
plans to replace the Local Government Assistance Corporation (LGAC)
capital reserves with a surety bond. The freed-up reserves would
be used to defease outstanding LGAC bonds. It is unclear whether
this transaction will result in true economic savings. Absent these
savings, it would appear the transaction is being pursued for public
relations purposes to simply offset the debt added during budget
OF THE ENACTED BUDGET
This section provides a summary
description of the State budget, focusing on the financial plan
and changes from the Executive Budget. Most of the spending increases
contained in the 1999-00 enacted budget are driven by current law
and the legislative rejection of proposed cuts, rather than by program
expansions. Even the large education aid increase was driven by
the phase-in of multiyear programs and by general growth in the
current school aid formulas. The General Fund budget was balanced
with virtually no spending cuts. It also retained the $1.82 billion
cash surplus from 1998-99 for use in future fiscal years. This was
possible because of the following:
- Tax collections continue
to be robust, despite $1.8 billion in tax cuts being phased
in during 1999-00. Excluding the impact of the rollover of
the 1998-99 surplus, revenues increased approximately $752
million. Most of this increase is in the personal income tax
and is driven by the boom in incomes led by strong financial
- Growth for entitlement
programs continues to be moderate, with public assistance
caseloads declining and moderate Medicaid growth.
- Certain non-recurring
resources of approximately $400 million are used to offset
Overall State Spending
According to the financial plan released by the Division of Budget
(DOB), All Funds(1) spending in the budget totals $73.3 billion, an
increase of $2.7 billion or 3.8 percent; with State Funds spending
increasing at a slightly higher rate of 3.9 percent, and General
Fund spending increasing at 2.4 percent.
Spending is understated through
the use of several offsets to spending. Without these accounting
actions, that are designed to deflate growth, General Fund spending
growth would be 3.5 percent -- 1.4 times the rate of inflation and
State Funds spending would grow 4.2 percent or 1.8 times the inflation
by Fund Type
1999-00 Enacted Budget
(dollar amounts in billions)
1999-00 General Fund
General Fund spending is projected to increase by $868 million in
1999-00. Almost all the spending increase is due to increased education
spending of $908 million (on a fiscal year basis). Other spending
for community-based mental hygiene programs, local transportation
funding, and revenue sharing increases by $282 million. State operations
spending is projected to increase by more than $200 million primarily
due to expected increases in payroll costs driven by collective
General Fund spending is being offset by a number of accounting
actions that reduce the reported growth. These offsets total approximately
$400 million. Without the benefit of these offsets, spending would
grow to $1.3 billion, or 3.6 percent. The offsets include:
- $250 million transferred
out of the Medical Malpractice Insurance Association fund and
placed in a special revenue fund to offset General State Charges
(GSC) spending. The budget provides for the eventual dissolution
of this association and such privatization is expected to produce
an additional estimated benefit of $250 million in 2000-01 which
is also expected to be used as an offset against GSC spending.
There is no programmatic relationship between MMIA and GSC; this
is purely an accounting manipulation to reduce General Fund spending
- $100 million from non-recurring
excess balances in pools related to the old hospital reimbursement
system (NYPHRM) are used to directly offset Medicaid spending.
Normally, these types of fund balances are transferred to the
General Fund for budget relief. The balances in these pools were
allowed to accumulate. This has the effect of depressing State
Funds and All Funds spending.
- $45 million from current
Health Care Reform Act (HCRA) pools is used to directly offset
Medicaid spending. This is expected to provide a one-time reduction
in Medicaid spending. This also reduces State Funds and All Funds
- $46 million in General Fund
savings from counting an increase in the earned income tax credit
(EITC) as part of the minimum State public assistance spending
levels required by the federal government. The EITC is a refundable
credit provided to lower income working families. The addition
of these expenditures allows the State to lower General Fund public
assistance spending by substituting federal block grant funds.
This action is expected to generate recurring and increasing General
Fund relief in the future.
in 1999-00 General Fund Spending
With and Without the use of Offsets
Increase with Offsets
Increase without Offsets
to Other Funds
1999-00 General Fund
General Fund receipts are estimated to increase by $2.6 billion,
or 7.0 percent, over 1998-99. However, this increase includes the
1998-99 surplus of $1.82 billion, which is counted as a receipt
in 1999-00 ("the rollover"). When receipts are adjusted
to reflect surplus rollover set aside for future use, the total
receipts available in 1999-00 decreases to $752 million, an increase
of 2.0 percent over 1998-99. The growth in taxes is almost entirely
attributable to the personal income tax and higher collections associated
with strong financial markets.
General Fund Receipts
Change from 1998-99
Taxes and Fees
to Other Funds
to be carried into 00-01
General Fund Receipts
Reported growth in receipts
does not reflect the strength of the economy. Tax cuts and accounting
actions reduce reported growth by $2.5 billion ($1.76 billion in
tax cuts and $661 million in STAR). STAR is the local school tax
reduction program funded by the State. Absent these actions, receipts
would have grown an estimated 8.8 percent.
Non-recurring resources are estimated to total $573 million. This
is a disturbingly high level given the current strength of the economy
and the existence of a $1.82 billion planned surplus. These actions
resemble the poor financial practices used to balance precarious
budgets in the early 1990's recession. Non-recurring resources in
1998-99 were only $64 million, and none of them were objectionable.
The 1999-00 enacted budget includes:
- A three month delay in implementing
the permanent sales tax clothing exemption. Instead, two temporary
week-long sales tax clothing exemptions were added. The net result
of these actions was to deprive taxpayers of an estimated $100
million in tax savings and provide one-time resources for the
financial plan. This was done as additional tax reductions were
- The enacted budget directed
Medical Malpractice Insurance Association (MMIA) to transfer $250
million to a special revenue fund that will be used to offset
General State Charges spending. MMIA was established in 1983 to
provide excess liability insurance to doctors and medical providers.
This fund has been raided a number of times in the past; this
year's raid brings the total transfers (including interest) to
nearly $1 billion. In addition, legislation provides for the sale
of MMIA; the proceeds, expected to be received in 2000-01, will
once again be used to offset spending.
- One-time financial plan
benefit is provided by the transfer of $100 million from excess
balances in NYPHRM pools and $45 million from HCRA pools.
- Permanently deferring one
month of Supplemental Security Income (SSI) payments to the federal
government generates $45 million.
- Other non recurring resources
include: $15 million in loan repayments from the Long Island Power
Authority (LIPA), $8 million from the sale of the state office
building at 270 Broadway, and debt recovery activities from outstanding
Malpractice Insurance Association Transfer
NYPHRM pool balances
sales tax exemption for clothing
from HCRA pools
instead of 12 SSI payments
from Executive Budget
The following table summarizes the changes in available resources
and uses from the proposed to enacted budget. Most of the spending
additions to the Executive Budget were restorations of proposed
cuts in education, health, and higher education. The significant
resources included: revenue and spending re-estimates of at least
$463 million, mostly in the income tax, sales tax and Medicaid;
the MMIA transfer of $250 million; rejection and postponement of
proposed and scheduled tax cuts of $223 million; and $191 million
in other spending offsets.
from the Executive Budget to the enacted budget
Identified Resources and Uses
Aid and Other Education
Malpractice Insurance Fund
and Executive Initiatives(3)
balances in NYPHRM pools
of sales tax clothing exemption
of TANF funds
of certain HCRA pools
In addition to the resources
and the uses identified above, there were up to $200 million in
other actions included in the budget. For example, Quickdraw expired
for four months, additional lottery revenue raising proposals were
partially rejected, certain fee increases proposed by the Governor
were rejected, and proposed changes to the STAR program were excluded.
These actions decreased revenues compared to the Executive Budget.
The lower revenues were offset by available resources including
additional revenues available from enacting a lower cost tax cut
plan than proposed by the Governor and additional spending reestimates.
The net impact on the financial plan is zero, nonetheless, under
past practices these actions would have been publicly disclosed
and included in the list of resources and uses.
Reported Spending Growth
The spending additions to the Executive Budget were reported to
be approximately $1.1 billion. However, reported General Fund spending
grows by only $213 million from the level proposed in the Executive
Budget after 30 day amendments. The difference is the result of
spending re-estimates, spending offsets, and other actions that
modified Executive proposals.
of 1999-00 Spending Levels Proposed by the Executive and Enacted
In order to reconcile General
Fund spending in the Executive Budget with enacted spending a number
of adjustments need to be applied to the $1.1 billion in gross spending
additions. The following actions were included in the enacted budget
and result in the wide difference between gross spending increases
and reported spending growth.
- General Fund spending
offset of $250 million from the MMIA transfer.
- Accounting modification
in the way the $250 million Debt Reserve Reduction Fund (DRRF)
- General Fund spending
offset of $145 million from the transfer of monies from certain
health related pool balances.
- Spending re-estimates
of $150 million, primarily in Medicaid.
- General Fund spending
offset of $46 million from maximizing federal welfare grant
- Other adjustments of $80
million, consisting primarily of reductions to Executive proposals.
Spending Changes from Proposed Executive Budget
care pool transfers
federal welfare funding
Revised Out-year Gap
Estimates of the future impact
of the adopted 1999-00 budget are presented here to fill a void
in the existing State budget process. The Governor is required in
his Executive Budget submission to include a financial plan projection
for the two years following the budget to allow an evaluation of
the States financial condition and to measure the impact of
the Executive Budget. There is no similar requirement for the enacted
The methodology used to prepare
the estimates in this report uses the Executive Budgets original
forecast and then makes adjustments based on changes included in
the enacted budget. The OSC gap estimates for the enacted budget
assume the use of the 1998-99 surplus that was set aside in this
years budget as proposed by the Governor. The utilization
of the surplus reduces gaps by approximately $615 million in 2000-01
and $1.2 billion in 2001-02.
The estimated gaps presented
in the Executive Budget were understated by nearly $1 billion by
incorporating unspecified savings in 2000-01 and 2001-02 and failing
to incorporate collective bargaining costs. The OSC estimates exclude
the unspecified savings because there is no articulated plan on
how the Executive plans to achieve them. The OSC estimates incorporate
the same assumptions for collective bargaining as does the Executives
revised estimates. When OSC adjustments are made to the Executive
Budget estimates, the Executive Budget projected gaps become $2.1
billion in 2000-01 and $3.0 billion in 2001-02.
After reflecting changes made
in the enacted budget, OSC projects budget gaps of $2.8 billion
in 2000-01 and $4.6 billion in 2001-02. The increase of nearly $800
million in 2000-01 between the time of the proposed budget and the
enacted budget represents the annualized impact of spending additions
(primarily in education). In addition, OSC assumes there will be
spending for legislative initiatives, the Executive does not. Although
this spending is not statutorily required, historically enacted
budgets include it. An upward revision in out-year revenue estimates
helps to offset the loss of certain non-recurring resources. In
2001-02, the estimated gap is projected to increase by nearly $1.6
billion, largely due to the same factors.
Estimate of Future Gaps
State Fiscal Year
Change: Adjusted Executive to Enacted
Source: Office of the State
Comptroller. OSC adjustments exclude unspecified savings and include
collective bargaining costs.
Future budget gaps remain a
serious problem for the State, particularly in 2001-02 when the
gap is estimated to reach $4.6 billion. These estimates understate
the extent of the ongoing, underlying, structural imbalance. Without
the use of the surplus, the gaps would be $3.4 billion in 2000-01
and $5.8 billion in 2001-02.
The future gaps could be decreased if growth in receipts is better
than projected and growth in spending is lower than anticipated.
Large upward revenue reestimates have been common for the past three
years, and may continue in the future, especially if financial markets
continue to perform well. In addition, if welfare and Medicaid caseloads
continue to decline and prices remain stable, expenditures could
be lower than projected, which would also reduce the gaps. However,
revenues could trend lower if Wall Street suffered a significant
downturn. A general economic recession is also always a major budget
The enacted budget includes almost $3.4 billion reserved for specific
future spending needs or rainy day funds. This amount represents
8.6 percent of total General Fund receipts and is much higher than
it has been in the recent past. However, more than one-half of this
amount, $1.8 billion from the 1998-99 surplus, is expected to be
spent in the next two years and does not represent a long-term rainy
Stabilization Reserve Fund
for future welfare needs
for future child care needs
These reserves have been created
for a variety of purposes, including:
- The use of the Tax Stabilization
Reserve Fund is restricted to unplanned budget deficits.
- The Contingency Reserve
fund was created to provide reserves that the State could use
for litigation-related costs.
- The 1998-99 surplus is set
aside to be used for budget balancing purposes. The Executive
plans to use $615 million in 2000-01 and the remaining $1.2 billion
- The reserves related to
welfare, $548 million and $200 million, are the result of excess
federal funding. The contingency fund for future welfare needs
provides a cushion for increased spending resulting from higher
caseloads in the event of an economic downturn. The set-aside
for child care provides additional funding over the next three
years for increased child care needs related to stricter work
While almost all of the above
funds have been earmarked for certain purposes, it is possible,
with appropriate statutory changes, to use these monies, with the
exception of the federal welfare funds, for other purposes. The
only clear reserve for economic hardship is the Tax Stabilization
Reserve Fund. This type of reserve needs to be expanded to ensure
that the State is prepared for an economic downturn.
A $913 million, 7.8 percent increase in State aid for the 1999-2000
school year is provided, bringing total aid to more than $12.6 billion.
The enacted budget is $644 million higher than the Executive's original
proposal (a $269 million, 2.3 percent increase was proposed). The
increase was produced by restoring the Executive's proposed cuts
and elimination of multiyear early childhood and other programs
known as the LADDER initiatives, as well as by growth in the general
aid formulas, with some modification.
The Executive's press release on the enacted budget accurately described
this year's increase as the largest ever and the last three years
as the three largest aid increases in school aid history.
Interestingly, however, the
increase in aid is identical to the increase that would have been
driven by the operation of current law aid programs and formulas
without any modification (also $913 million). Further, the changes
made in many ways failed to materially advance either the efficiency
or the equity of the aid distribution.
School Aid Changes
The enacted budget's increase
primarily restores cuts proposed by the Executive while also tinkering
with the existing aid formulas and the "transition adjustment"
(a calculation that regulates the changes in aid under the largest
general aid formulas). The Legislature rejected the Governor's elimination
of the LADDER programs, restoring the pre-kindergarten, class size
reduction, full-day kindergarten, and minor maintenance programs
at planned funding levels. Other recommended cuts were also rejected,
including those for BOCES, building aid, limited English proficiency
grants, and aid freezes in several categories. A new category of
aid for districts meeting certain tax effort specifications was
provided (in apparent substitution for a tax freeze/limitation incentive
aid program previously enacted but canceled before scheduled implementation
this year).(9) Teacher support aid
was restored -- a $67.5 million program going to the big five cities
that was eliminated by veto last year. Also, $145 million was provided
to fund the RESCUE program for extraordinary school capital needs.
This program was enacted last year but the funding was vetoed; the
funds will be provided through State bonding in the capital budget
and thus are not included in the $913 million increase.
The Executive Budget had proposed a significant simplification and
consolidation of the aid formulas, including a block grant approach
for many current categorical aids. These proposals would have provided
school districts greater flexibility and allowed for a more accurate
and efficient aid calculation, but unfortunately were made in a
way that was highly damaging to equity. For example, school district
wealth was removed as a factor from the largest portion of the aid
calculations and an alternative calculation was made giving the
largest increases in aid to districts which had recent enrollment
increases (which, on average, tended to be the wealthier districts).(10)
Additionally, by including the LADDER incentive programs in the
block grant approach, these programs were essentially eliminated.
The rejection of the Executive's proposals is thus fortunate from
an equity perspective, but it leaves the issue of the inefficiency
of the current aid formulas unaddressed.
Although the Legislature rejected the Governor's recommendations
to remove relative wealth from the operating aid formula and other
cuts that would have hurt many needy districts, particularly large
urban districts, this budget does not move forward toward greater
equity among high- and low-wealth districts, despite the large overall
As usual, the budget took an approach that preserves the "shares"
of aid going to various regions and types of districts. As demonstrated
in the following table, each major regional category receives virtually
the same share of aid in 1999-00 as they received in 1998-99, although
they received marginally different percentage increases and shares
of the increase. The small cities were the only group that can be
said to have received even a modest shift, and since they are generally
higher needs districts, their having done worse on average than
other districts is certainly not an improvement. A status-quo approach
of this kind cannot materially address the existing disparities
|No. Of Districts
|New York City
|Rest of State
|Big 4 Cities
|New York City
|Rest of State
|Big 4 Cities
Note: This chart is based on
only the computerized aid categories and so does not match the $913
million bottom line school aid increase; it is based on the SED
computer run released with the budget (run no. SA990-0), which includes
teacher support aid and various other grants and prior year adjustments
not usually included among the computerized aid categories.
In accomplishing this distribution,
most general school aid formulas were restored to present law levels
(i.e., the funding implicit under existing formulas and plans),
although there were modifications. For example, there were changes
to increase "operating standards aid" and the aid provided
through increased weightings for limited English proficient pupils.
However, the transition cap was generally tightened in a fashion
that reduced the aid increases allowed: a maximum increase of 2.8
percent over the previous year (was 5 percent last year) or a 7.8
percent share of the overall formula increase calculated if that
is higher (was 17.6 percent last year). The enacted budget therefore
withholds $104 million more in formula aid from districts than present
law would have. In essence, the transition cap was tightened in
order to pay for other actions, such as the restoration of teacher
support aid and increases for operating standards aid and limited
English proficiency. Another change in the transition cap eliminates
the guaranteed minimum increase provisions put in place last year
(these provisions tended to limit the equalization provided in the
Since the enacted budget contained a statewide school aid increase
this year identical to that produced by the operation of present
law formulas, it is possible to compare the average percentage increases
under both. The analysis shown in the chart below uses the combined
wealth ratio (CWR), which ranks districts by property wealth and
income, and a comparison basis similar to that used by the State
Education Department (SED). As the chart shows, on average, the
poorest groups of school districts would have received greater increases
under present law than they did under the enacted budget, and only
the wealthiest group received a higher aid increase under the enacted
budget than they would have under present law. An examination of
the results for individual districts also confirms the general trend
shown by the averages.
Interestingly, these results
seem to contradict those presented in the Education Department's
post-budget analysis, which uses similar measures. The key to this
discrepancy is that SED presents a single figure to describe the
impact on high needs districts: their overall share of the aid increase.
Since New York City is the largest high-need district in the State,
this single percentage share approach obscures the impact of the
changes on other high need districts. A review of the data summarized
in the SED charts shows that only 33 of the 170 districts in their
high need category received a larger increase under the enacted
budget than under present law. Eighty percent of the high need districts,
in other words, would have done better if present law had been continued
without change to the formulas.
Specific Aid Category Changes
Special education funding changes were enacted
prospectively (i.e., no changes occur until the 2000-01 school year).
Reforms in this area have been discussed for years, and action was
finally taken largely because of threats from the federal government
to withhold more than $300 million in federal aid if the State's
approach could not be shown to encourage inclusion of special education
pupils in regular classes.
The aid formula modifications which begin in the 2000-01 school
year are intended to have the effect of moving more special education
children into regular classroom settings. Specifically, per pupil
weightings for children being served 60 percent of the day or more
outside of a regular classroom will be marginally decreased over
the next three years while students served in integrated settings
will receive an increased weighting (which is paid for largely by
reducing certain save-harmless provisions). Funding for support
services (known by the acronym ERSSA) will also increase slightly,
in proportion to general levels of district poverty. In addition
to the aid changes, a series of regulatory changes are called for,
including various requirements on school districts and SED, which
will have to monitor more closely school district referral practices
and develop alternative placement and preventative services models.
It remains to be seen whether the changes enacted will address the
prevalence of minorities in special education programs outside of
regular classrooms, an issue raised in the federal correspondence.
The Governor's proposals to cut BOCES funding by
25 percent and to eliminate this aid stream in the following year
were rejected. While maintaining BOCES as a vehicle for shared services,
several changes were made in an effort to reduce costs: BOCES aid
is no longer available for educationally related support services
and to be eligible for aid, technology agreements with BOCES must
be less expensive than what a district would otherwise pay.
Funding is restored for RESCUE -- for REbuild SChools
to Uphold Education, the extraordinary capital needs program enacted
in 1998-99 but for which funding was subsequently vetoed. Funds
of $145 million are provided for the construction and/or reconstruction
of school facilities (primarily instructional space), to be paid
through bonds sold by the Dormitory Authority. The $145 million
figure represents the initial funding of RESCUE with future funding
to be determined later. Last year the $500 million in funding that
was vetoed had been planned to meet needs during a four-year period;
this mismatch in time periods and the uncertainty over future funding
makes a direct comparison between last year's enactment and this
year's budget impossible.
RESCUE aid is apportioned to districts based on their share of pupils
(with a minimum apportionment of $20,000). The RESCUE funding can
be used to pay the local share of a building aid project as long
as 2 to 5 percent (depending upon certain factors) is paid by the
A prospective change in the building aid formula
will reduce aid in future years for districts benefitting from a
save-harmless provision in the calculation of the aid ratio. For
projects approved by voters on/before June 30, 2000, the formula
remains the same, including the additional 10 percent incentive.
For projects approved on or after July 1, 2000, districts must choose
between their current aid ratio plus the additional 10 percent,
or the selected aid ratio (i.e., with save-harmless) minus 10 percent.
Late Budget Impact
Despite a record state aid increase, the extreme lateness of this
year's budget has dramatically and negatively affected school districts
throughout the State by inhibiting their ability to plan and carry
out educational programs. As reported by a major local school district
"The increased aid should
in no way overshadow the limitations a late budget places on every
school system ... A tardy budget leaves districts with the inability
to plan effectively, to recruit competitively, to hire, and to implement
training -- one month before school opens!"(11)
All school districts outside the big five cites must submit budgets
to their voters on the third Tuesday in May, and when the State
budget is late, they must do so based on an educated guess about
how much school aid they would be receiving. Although passing spending
plans without good information on aid is always difficult for schools
and their taxpayers, this year the situation was exacerbated because
the LADDER education initiatives were excised in the Governor's
Budget (although restored in the final enacted budget). These multiyear
incentive programs call upon districts to create new programs or
change current plans in order to receive funding, and leaving their
future in doubt during the period schools were planning for the
upcoming school year may have negated or diminished the intended
effect. With funding in doubt, many school districts may have been
unwilling to proceed with pre-kindergarten programs, additional
maintenance projects, full-day kindergarten programs, and class
size reduction plans.
Late budgets most significantly impact low-resource, high-needs
districts for which State aid programs are more critical. As the
school district budget voting day preceded State budget passage
(an increasingly commonplace event), local taxpayers had to consider
school budgets without good information on what the property tax
levy would be. This year the situation was even worse than usual
because the budget was delayed far into the summer and some districts
filed tax warrants without knowledge of how much aid they would
receive. The extreme lateness undoubtedly had the effect of raising
taxes in many districts, although the only available evidence is
The late budget had other impacts. Magnet schools' summer programs
were not funded and they had to delay planning of fall programs.
Funding for teacher centers and bilingual education technical assistance
centers had been eliminated in the Executive budget, requiring administrators
to make contingency plans for new sources of support or to lay off
employees, closing their doors for the year.
The STAR program continues in implementation as scheduled, with
non-senior homeowners receiving the first installment of their tax
relief this year. The senior exemptions are already fully effective
and the non-senior exemptions are being phased in over three years.
The cost of the exemptions statewide is expected to slightly exceed
$1 billion this year and grow to about $2.3 billion upon full implementation.(13)
Although several administrative changes are made to the STAR program,
the changes fall far short of the improvements proposed by the Executive
(and supported by a review from the State Comptroller's Office).
That review, Administering STAR -- The Need for Better Guidelines
and Greater Uniformity in Procedures, was released in early
April 1999 and made additional recommendations. The Executive recommendations
that were enacted include:
- Establishing a uniform time
frame for age eligibility for the seniors enhanced exemption,
- Various changes providing
clearer and more beneficial rules for applying the seniors exemptions
when an eligible spouse dies, a senior moves into a nursing home,
a residence is shared by siblings and other issues, and
- Increased State funding
for administration of the program by local assessors, although
the Executive's recommendation was reduced from $17 million to
Of the Executive's recommendations
not adopted, most significant was establishment of a system in which
income verification for the seniors exemptions would be provided
by the Department of Taxation and Finance. This proposal not only
would have provided more effective verification, it also would have
relieved seniors from having to reapply annually to verify their
Several new legislative initiatives were enacted. Assessors must
forward to cooperative apartment corporations and trailer/mobile
home landowners exemption amounts for each applicable tenant. Also,
seniors who fail to renew annually will automatically get the lower
valued basic STAR exemption.
The Comptroller's study included an administrative review and field
visits to assessing units and revealed insufficient State guidance
and confusion among assessors, resulting in varying rules being
applied throughout the State. A number of changes were recommended
in that report that can be implemented administratively by the Office
of Real Property Services, such as providing comprehensive instructions
to assessors to administer the program and clearer instructions
for residency verification. However, other recommendations require
legislative action, including:
- Amending to the statutory
audit provisions to ensure that school districts are not held
responsible for exemptions improperly awarded by assessors,
- Providing reimbursement
to school districts for interest losses and borrowing costs due
to the delayed receipt of STAR revenues, and
- Increasing the amount of
unreserved fund balances that can be held by school districts
from two to five percent of their budgets.
Last year's payment schedule
for STAR will stay in effect for the 1999-00 school year (35 percent
in October, 35 percent in November, 10 percent in December and 20
percent in January). The permanent payment schedule recommended
by the STAR Cash Flow Study Commission is to take affect in the
2000-01 school year (under which payments that will be disbursed
relative to the proportion STAR represents in each district's property
Property Tax Report Cards
Schools will now be required
to send data to SED for the compilation of a "property tax
report card" containing information on how their proposed budget
will affect property taxes and how the proposed budget and tax rate
will compare to the inflation rate for the prior calendar year.
SED is then required to tally all districts' tax information and
make it available on the Internet, 10 days before the statewide
budget vote day, so that taxpayers can compare their district's
budget and tax increases with other districts. Both the property
tax report card and a newly required notice to voters must compare,
using percentages, the proposed budget increase over the prior year
with the consumer price index of the prior calendar year. It is
interesting to note that at the state level, this year's enacted
budget increase compares favorably with inflation only after a series
of accounting gimmicks and "move-outs" were used to reduce
the General Fund increase.
The statute requires data to be sent to SED at least 24 days before
the statewide school district budget vote day. Under this time frame,
and given the State's recent budget history, it is highly unlikely
that districts will have state aid data, and thus the tax levy information
published in the report cards will be substantially inaccurate.
As an example, next year the budget vote day is May 16 and thus
districts will have to submit data to SED by April 22; in only three
of the last 10 years has the State budget been passed by that date.
Report card data furnished in advance of budget passage should contain
a prominent and substantial disclaimer to the effect that the property
tax rate information is only speculative.
The new cuts proposed in the Executive Budget were rejected,
and there were some restorations in areas suffering from cuts made
in earlier years, as well as some new items. In total, $150 million
in additional funding for the 1999-00 State fiscal year was provided,
equating to $172 million on a full annual basis. The preponderance
of this addition funded restoration of a proposed TAP cut. Most
of the other additions were somewhat smaller than last year's restorations
(which were vetoed), and they are certainly not large enough to
make up for the erosion in higher education funding that has taken
place over the past decade.
The higher education additions at the public universities, moreover,
are overshadowed by two major funding issues that were not explicitly
addressed in the enacted budget. Both SUNY and CUNY lack funding
for increased personal service expenditures (required under collective
bargaining agreements) and other inflation and growth in mandatory
costs. In addition, a $77 million shortfall at the SUNY Hospitals
will have to be covered, potentially through a cut for academic
programs at the campuses. A mid-year increase in tuition at SUNY
has also been discussed.(14)
Both of these situations were well known during the budget negotiation
period and yet were ignored in the final product. The additions
to the public university budgets, such as those for full-time faculty,
day care and opportunity programs are useful, but they are very
small in comparison to the amounts that will have to be found to
meet inflationary costs and (in SUNY's case) to fund the hospital
The additions to the Executive Budget were as follows:
- TAP -- the Executive's proposed
cut was rejected and the program is maintained at current grant
levels, thus restoring $113 million for the 1999-00 academic year.
An increase in the maximum grant level sought by the independent
institutions was not provided, however, and the $4,125 maximum
grant today covers only about 25 percent of the average tuition
at these colleges whereas it covered 40 percent in 1990 and 60
percent in 1974.
- Opportunity programs received
additional funding totaling $8.3 million on an annual basis (including
EOP at SUNY, SEEK/CD at CUNY and HEOP at independent institutions).
However, these programs have generally been straight-lined or
cut since the late 1980's and a 25 percent across the board cut
was imposed in 1995-96. Last year's legislative budget would have
essentially restored the 1995-96 25 percent cut (although not
the losses to inflation before and after that action), but the
additional funding was vetoed. This year's addition is about two-thirds
the amount enacted and vetoed last year.
- Community College Aid --
A $75-per-student increase in aid provides $14 million more on
an annual basis for SUNY and CUNY community colleges. While helpful,
this increase is only half of the $150-per-student increase that
had been requested by the public university systems -- an increase
that would have restored the State's share to about one-third,
as was originally provided (but still short of the 40 percent
share promised and achieved for one year in the 1970's).(15)
- Faculty lines -- $6 million
is provided to establish more permanent faculty lines at the public
university systems and community colleges. This addition is roughly
one-third the amount contained in last year's budget for this
purpose (but vetoed). While positive, this amount will not by
itself make up for the decade of freezes and cuts that have left
many campuses with larger numbers of part-time adjuncts than full-time
- Bundy Aid, which goes to
independent colleges and universities based on the number of degrees
granted, was increased by $4.2 million to $48.5 million. This
increase is helpful, although it is slightly less than last year's
enacted and then vetoed increase of $5 million. However, funding
today is far below the "statutory level" (i.e., the
dollars per degree calculation specified in law). Bundy aid has
not been fully funded since 1990-91, at which time it provided
$107 million. Even before the impact of inflation, in other words,
the program has been more than halved during this decade.
- Funding was restored for
the State Education Department's higher education staff and the
proposed elimination of their responsibilities was not accepted.
- Other restorations include
the FIT charge-back, collaborative programs at CUNY, and Cornell
Cooperative extension. Additional funds are also provided for
child care for students at the public university systems, for
the STEP/CSTEP technology education programs, and various other
- The Jobs 2000 or "J2K"
economic development programs are closely related to higher education.
The programs include funding for faculty development, Centers
for Advanced Technology (CATS), a capital facilities program,
and a technology transfer incentive program, all of which will
be coordinated through a new Office of Science, Technology and
Academic Research (announced as NYSTAR although bearing no relationship
to the school tax relief program with a similar acronym).
Unfunded Salary Increases
and Other Costs at SUNY & CUNY
The senior colleges at CUNY and the SUNY state-operated institutions
were "straight-lined" in the Executive budget, meaning
that no funding was provided for growing costs either for personnel
or other inflation and expenses. The largest component of this omission
is the substantial and known costs for collective bargaining increases
already in place for faculty and staff ($32 million at SUNY and
$23 million at CUNY). Other inflationary increases were also unfunded,
such as those for rents, library and instructional materials, equipment
and specific charges such as building rents. Lastly, both university
systems identified certain mandatory needs in their budgets, such
as additional operating costs for the new graduate center at CUNY
($4 million) and reduced revenues from interest earnings and other
changes in the SUNY income offset account ($9 million).
The legislative additions did not address these costs,
although the collective bargaining increases were discussed at the
conference committee and the legislative chairs agreed that Executive
should fund these increases through a statewide lump-sum reserve
appropriation for collective bargaining increases. That appropriation,
however, was intended to support agreements to be negotiated during
the year, not the signed agreements at SUNY and CUNY. The Executive
Budget explicitly intended that these costs and other inflationary
increases be funded through reductions elsewhere in the systems;
the enacted budget did not alter that situation.
The only adds going directly to CUNY senior colleges and SUNY state-operated
institutions are for full-time faculty lines, opportunity program
restorations and additional child care for students. At SUNY these
adds total just $5.6 million, whereas unfunded mandatory needs total
$58.3 million. At CUNY, a $4.3 million addition contrasts with $33
million in unfunded mandatory needs.(16)
SUNY Hospitals Revenue Shortfall
A $77 million shortfall at the SUNY Hospitals has resulted in an
impoundment of appropriations by the Governor's Budget Director.
This action requires the SUNY Board of Trustees to choose between
spending reductions at the campuses (reallocating student tuition
revenues) or the hospitals (with patient service implications and
causing further revenue problems). A tuition increase has also been
discussed. Without additional State funding, the hospital shortfall
can only be met by taking funds from other purposes or by using
temporary solutions such as borrowing.
This situation was known during the budget negotiations but was
not specifically addressed. The belated actions now being taken
administratively could have a serious detrimental impact on SUNY
academic programs or on patient care and hospital revenues.
The shortfall resulted from the hospitals' inability to meet their
revenue targets, which are developed by the Division of the Budget
and built into the appropriation schedules. As of the end of the
University's fiscal year in June, a $77 million temporary loan was
necessary to avoid a deficit. Although the temporary loan was repaid
in September with tuition revenues, the shortfall it revealed still
exists, and an even larger revenue shortfall is expected in the
The Governor's Director of the Budget has both the power and responsibility
to impound portions of appropriations in order to address revenue
shortfalls. On August 24, only 20 days after budget enactment, the
Budget Director impounded $77 million from SUNY's appropriations
(an amount identical to the year-ending loan). The impoundment was
taken against SUNY Special Revenue Fund (345), which includes revenues
from tuition and student fees as well as hospital income.(17)
In the case of the SUNY appropriation schedule, the Budget Director
can withhold funds without indicating whether the reductions are
to come from the campuses or the hospitals. The SUNY trustees are
then responsible for making that choice in their financial plan.
The State University Trustees have not indicated if the $77 million
reduction will come from SUNY campuses or the hospitals. Comptroller
McCall wrote to the University's Board of Trustees expressing concern
both about the long-term structural problem at the hospitals and
threat of the potential cuts to academic programs or a tuition increase.
In a response letter, SUNY's Executive Vice Chancellor said that
SUNY "would do everything possible" to avoid a reduction
in the core budget and that "at this point, we have no intention
of reducing spending on academic programs or diverting student revenues."
The letter did not address the issue of whether a tuition increase
was being considered.
Action by the Trustees on a financial plan had originally been expected
at their September 22 meeting; it has now been deferred until their
meeting of October 26. The substantial delay in adopting a financial
plan for university operations (two months into the academic year)
will undoubtedly cause administrative problems at the campuses.
The Budget Director's impoundment action allows the Trustees to
override the Education Law's interchange limits between hospitals
and campuses.(18) If the Trustees
fail to allocate such a reduction within 30 days, the Budget Director
is empowered to do so directly. The override authority would allow
the Trustees to reduce campus appropriations approved by the Legislature.
A reduction spending authority for academic programs would make
tuition and other student revenues available for financing the hospital
deficit. Such an action, although it fills in last year's deficit,
diverts funds intended to support academic programs.
Without additional State funding
or an unexpected surge in revenues, the hospital shortfall can only
be met by taking funds from other purposes or by using temporary
solutions such as borrowing or other one-time actions. This is also
true for the other unfunded costs in the University's budget. It
is unlikely that the hospitals will be able to produce enough revenues
to recover last year's shortfall, much less generate enough to cover
this year's potential imbalance .
A reduction of $77 million -- if the entire impoundment were applied
to campuses -- would represent a cut of nearly 5 percent in the
core operating budget. Cuts and freezes over the past ten years
have already reduced the portion of SUNY's core budget funded by
the State from over 75 percent to roughly 50 percent at present.
Another option to cover the shortfall would be to raise tuition
or other student fees. This would provide additional revenues that
could be used to pay back last year's loan as well as cover any
current year shortfall. This approach is fiscally viable, but programmatically
objectionable because it would be unfair to students and damaging
to access. Comptroller McCall has expressed his strong opposition
to a tuition increase that would force students to pay for the shortfall
at the hospitals.
Part-Time TAP Pilot
A pilot program at CUNY to test a new approach to financial aid
for part-time students has been approved for three academic years
to begin in the fall of 2000. It has long been theorized that many
students for whom part-time study would be advantageous because
of their family or employment situations are driven to register
for full-time study by TAP eligibility rules. Although the State
has a part-time aid program, APTS (Aid for Part-Time Study), it
is funded at a low level and the grants are not entitlements, but
are distributed on using different (and often inconsistent) methods
among campuses. The negative consequences of students being pushed
into full-time status include poorer academic performance, retention
and persistence problems (e.g., "stopping out") and low
The pilot Part-Time TAP (or P/TAP) program would provide grants
equal to a pro-rated share of the regular full-time TAP grant entitlement
for students taking at least six but less than twelve credit hours
per semester. Only students who had completed 24 credit hours or
more at CUNY and obtaining a "C" or better average would
be eligible. CUNY estimates that approximately 7,500 of their students
will participate, roughly half of whom are now registering for full-time
course loads. The pilot is expected to be cost neutral, because
there will be offsetting decreases in both TAP and APTS, and an
evaluation study is required at the end of the pilot period. Federal
Pell grants have been available for part time studies for many years,
and this pilot will allow for effective testing of the impact of
the State moving toward a fiscally neutral approach to tuition assistance
for part-time studies.
HEALTH AND SOCIAL SERVICES
The Executive Budget proposed
actions that would have reduced General Fund spending by $511 million
in 1999-00. Of this amount, $266 million represented new State Medicaid
cuts that directly reduced payments to health care providers. The
remaining $245 million reduced State Medicaid costs by maximizing
federal payments. Providers would have lost an estimated $848 million
in Medicaid revenues (federal, state, and local shares). These reductions
would have been offset by an estimated net benefit of $82 million
by the Executive proposal to accelerate the scheduled elimination
of health care provider assessments by one year. Lastly, the Executive
proposed continuation of $85 million State Medicaid cost containment
measures that have been in place since 1996-97 and were scheduled
to sunset on March 31, 1999.
The enacted budget included no new Medicaid cuts. Old cost containment
measures, with one exception, expired for one quarter but were later
reinstated as of July 1, 1999. A large portion of the proposed State
Medicaid actions that maximize federal payments was adopted. The
expiration of provider assessments was accelerated three months
rather than the proposed one year. State Medicaid costs were offset
by balances in certain health care pools. As a result of these actions,
State Medicaid costs are reduced by an estimated $206 million and
providers are expected to receive a benefit of $268 million in contrast
to the proposed cuts of $848 million. In addition, since the introduction
of the Executive Budget, Medicaid spending projections for 1999-00
were lowered $103 million. This re-estimate has no provider impact.
A more detailed description of each of the major components follow:
- Revenue maximization
actions of $177 million. Federal funding is maximized through
intergovernmental transfers (IGTs) which involve increasing Medicaid
payments to county owned nursing homes, drawing down the additional
federal match and then sharing the increased federal reimbursement
between the State and county governments. Nursing home IGTs are
increased $113 million. This is a lower level than proposed by
the Governor. Some of the maximizing measures proposed by the
Executive were contingent on a lower level of State Medicaid spending
and could not be achieved, due to federal restrictions, when significant
restorations were made. Other maximizing actions include: $30
million from notwithstanding the cap on provider assessment collections,
and $35 million from increasing the local share of Medicaid costs
for managed care expenditures.
- Lapse in old cost containment
increased State costs $85 million. Medicaid cost containment
adopted in previous years sunset on March 31, 1999. The enacted
budget extended these provisions retroactively to July 1, 1999,
losing one quarter of savings for State and local governments,
and they now expire on March 31, 2000. (19)
In addition, since counties pay a share of total Medicaid costs,
their budgets will see unanticipated increased costs of $51 million.
The lapsed cost containment increased provider Medicaid revenues
by an estimated $271 million.
- Provider gross receipts
assessments were scheduled to be phased out by April 1, 2000.
The enacted budget accelerates this phase-out by three months
instead of the proposed one year acceleration. The one-quarter
speed up reduces provider assessments by $55 million. After accounting
for the Medicaid reimbursements associated with some of these
assessments, the net benefit to providers is an estimated $41
- Offsets of $145 million.
State General Fund Medicaid spending will be offset by transfers
of $100 million from existing balances in certain NYPHRM pools
and $45 million from unexpended Health Care Reform Act (HCRA)
Another $118 million from unexpended
HCRA pools, primarily hospital workforce retraining, is reallocated
as follows: $60 million for hospitals bad debt and charity care,
$18 million for hospitals disproportionately impacted by continuation
of old Medicaid cuts, $12 million for clinics' bad debt and charity
care, $16 million for priority health programs (as determined by
the Governor, Assembly, and Senate), $10 million for rural health,
and $2 million for cancer mapping.
of 1999-00 Medicaid Actions
Change from 1998-99
State Medicaid Costs
Provider Medicaid Revenues
from HCRA pools to GF
of provider assessment phase-out
Intergovernmental Transfers (IGT)
cap on provider assessments
of provider assessment phase-out
share shift and imposition of co-pay
from old NYPHRM pools
The 1999-00 State General Fund
Medicaid spending projection was lowered by $103 million. This represents
the recurring effect of lower than expected 1998-99 spending and
revised projections for the current year. Medicaid costs have stabilized
in recent years, after double digit growth in the early nineties.
State General Fund 1999-00
Medicaid costs are projected to decline $28 million, or 0.5 percent
compared to 1998-99. Underlying growth in program spending is the
normal growth that would occur absent statutory changes. In order
to derive underlying program growth, certain adjustments need to
be made; they include:
- impact of lapsed cost
- value of additional revenue
- value of non-recurring
spending offsets; and
- impact of changes in the
Medicaid-reimbursable provider assessments.
of Health General Fund Medicaid Spending: Enacted Budget
(dollar amounts in millions)
Estimated program growth in
State Medicaid spending is approximately 4.7 percent in 1999-00.
The rate of program growth is consistent with the experience of
the last two years and is below national projections. At the national
level, the Congressional Budget Office projects federal Medicaid
spending will grow 5.9 percent in federal fiscal year 1999 and 7.5
percent in 2000.(22) While the national
estimated growth rates provide some insight into the overall trends,
caution must be used when extrapolating to the State since the State's
share of total Medicaid costs differ from the federal and local
shares and depends on the type of medical service. In addition,
the State's population is steady while the rest of the nation is
Child Health Insurance
Child Health Insurance Plus (CHIP) was created in 1991 to help make
health insurance more affordable for children. Many children were
ineligible for Medicaid because their families' earnings were over
the eligibility threshold, yet these same families earned too little
to afford to pay for insurance. CHIP pays for, or subsidizes, health
insurance for these children.
The federal Balanced Budget Act of 1997 included a new block grant
program for states to provide expanded health insurance coverage
for children. New York receives approximately $256 million annually
in federal funds. This new funding, combined with existing State
funding enabled the State, after some debate, to dramatically expand
and improve the current program. (23)
Legislation passed last year expanded the number of children eligible
for the program, expanded the covered services to include vision,
dental and certain mental health visits, and reduced the premium
payments made by families.
CHIP spending is projected to total $432 million in 1999-00, representing
an increase of almost 85 percent from last year. This substantial
increase is attributable to the full year impact of last year's
enrollment increases and further enrollment increases forecast for
this year. The State embarked on an aggressive marketing and outreach
campaign to alert eligible families and children of CHIP. The results
are remarkable -- enrollment has increased from 153,000 in November
1997 to 332,348 in May 1999. The enrollment goal for State fiscal
year 1999-00 increases by nearly 100,000 to 300,000, after accounting
for the gradual transition of approximately 80,000 Medicaid-eligible
children to the appropriate program.(24)
Ultimately, the Executive's enrollment target for CHIP is approximately
Health Insurance Program Summary
The State portion of CHIP funding
comes from the Health Care Initiatives Pool created by the Health
Care Reform Act of 1996. This was the legislation that deregulated
hospital rates paid by non-Medicaid or non-Medicare payors. This
legislation, and the associated surcharges and pools, expires on
December 31, 1999.
New York is estimated to receive approximately $25 billion over
the next 25 years as a result of a comprehensive settlement among
46 states and U.S. territories and all the major tobacco companies.
New York's Consent Decree was approved by State Supreme Court on
December 23, 1998. The agreement provides for the distribution of
the settlement funds with the State's localities since they too
paid a share of the increased health costs associated with smoking,
particularly in the Medicaid program. New York State would receive
approximately 51 percent of the total settlement, New York City
would receive 26.7 percent and the balance of 22.3 percent would
accrue to other counties.
New York City, Erie and Westchester counties, all of whom had pending
related litigation prior to the national settlement, filed an appeal
on January 22, 1999 claiming the distribution formula was not equitable.
On July 15, the Appellate Division unanimously ruled in favor of
the State. The localities did not appeal. The New York settlement
is now considered final.
The settlement monies will not flow until 80 percent of the settling
states achieve "state-specific finality" and the settling
states represent 80 percent of the aggregate award, or June 30,
2000, whichever is first. State specific finality is achieved when
the consent order is approved by the courts and all appeals have
been exhausted. To date, 43 other settling states and territories
have obtained state specific finality. While these 43 states represent
80 percent of the number of settling states they do not total 80
percent of the funding. To date, settling states with state specific
finality represented 66.94 percent of the funding.
The Executive Budget did not anticipate receiving tobacco monies
until SFY 2000-01 but proposed creating a new tobacco fund that
would receive all monies and dedicating 75 percent of the State's
share of the settlement to reduce debt and the remaining 25 percent
to pay for unspecified health initiatives. The final budget created
a fund to receive the settlement, but decisions on its use were
New York will be receiving these tobacco settlement funds because
the State and its localities have spent billions of dollars on treating
the negative health consequences associated with smoking. Although
there are no restrictions on the tobacco funds, future smoking related
costs could be reduced if the State wisely spent a substantial share
of the newly available resources on health related initiatives including
youth smoking prevention. Using a portion of the tobacco settlement
to reduce debt may be controversial. Although the State's debt burden
is clearly excessive, there are also a host of pressing health care
needs. The use of the State's tobacco settlement will likely be
an issue in the upcoming Health Care Reform Act (HCRA) renewal debate
later this year.
In 1997, major programmatic and financing changes were made to New
York's public assistance programs in response to the federal Personal
Responsibility and Work Opportunity Reconciliation Act. Aid to Families
with Dependent Children was replaced with Family Assistance which
consists of a time-limited cash grant. Home Relief was replaced
with a new safety net program for adults, which in many instances
will provide non-cash benefits. Both programs have a number of federal
and State-imposed work requirements. If the federal work requirements,
which gradually increase over the next five years, are not met,
the State could face substantial fiscal penalties.
Federal funding is provided to New York through an annual block
grant of $2.4 billion. The amount of this grant is based on the
1995 public assistance caseload. Since that time, caseloads have
declined significantly and New York now receives a greater share
of total program costs from the federal government. The additional
amount of federal funding compared to the old program is often called
the "welfare windfall."
Each year the base level of the welfare windfall has grown because
caseloads continue to decline. In 1997-98, the first year the State
received a windfall, the base level associated with that fiscal
year was $624 million. This amount has grown to an estimated base
level of $937 million for 1999-00. The 1998-99 windfall was underestimated
and unspent funds were available for allocation in 1999-00. When
the underestimation of the 1998-99 windfall is included, the funding
available for allocation totals $1.43 billion in 1999-00.
of Available Federal Welfare Windfall Monies
for Future Needs
for Welfare to Work (training, education, drug screening,
for Future Child Care Needs
to Child Care Block Grant
and Incentive funding for local districts
In addition to New York, many
other states also have unexpended federal welfare funding balances.
There has been discussion at the federal level of taking these balances
and using them to offset other desired spending increases. Given
this discussion, there is risk that the federal government may take
away the balances states have wisely set aside for future needs.
The enacted budget uses $358 million of the welfare windfall to
provide general State and local fiscal relief, primarily through
a Title XX transfer. An additional $330 million is set aside for
future public assistance needs, bringing the total set-aside to
$548 million. Funding for employment related programs is $192 million.
In order for the State to draw down the full amount of the federal
block grant, spending must meet the required maintenance of effort
level (MOE). The estimated MOE is $1.718 billion and the State is
currently spending just about that amount. However, as caseload
declines persist, it may become more difficult for the State to
continue to meet the MOE requirements.
In 1999-00, the State will begin to claim a portion of the Earned
Income Tax Credit paid to lower-income working families against
the MOE. This assists the State in meeting the MOE requirements,
and the spending that would have otherwise been counted under the
MOE will be replaced with spending from federal funds. This will
provide additional State fiscal relief of $46 million in 1999-00
and expected relief of $150 million thereafter. When the expansion
of the EITC is fully implemented, it is expected that the cost of
the expansion of the credit will be fully funded through this refinancing.
For calendar year 1998, the monthly average number of public assistance
recipients declined 13.4 percent following declines of 9.5 in 1996
and 13.1 in 1997. For 1999-00, the Executive projects the number
of public assistance recipients will decline by another 7 percent.
The safety net caseload of adults is expected to decline at a faster
rate than the family assistance caseload.
Due to the projected decline
in caseloads, General Fund spending on the family assistance and
safety net programs is expected to decrease 6.7 percent to $742
million. The Supplemental Security Income (SSI) estimated to remain
stable and spending to grow by 0.9 percent. This is the net effect
of one-time savings of $45 million, introduced in the Governor's
30 day amendments, from only making 11 payments instead of 12, offset
partially by scheduled inflationary increases.
Programs: General Fund
Share of SSI
General Fund support for the
Food Assistance program is reduced to reflect the federal restoration
of food stamps to certain non-citizen children, disabled adults
The enacted budget contains no new appropriations for evaluation
of the new public assistance programs; however, nearly $700,000
in federal and State Funds is reappropriated for this purpose. In
June, the Comptroller released a report critical of the State for
failing to issue its first evaluation report.(25)
In late July, the State has released its first report on the evaluation
of welfare reform in New York State.(26)
Elements of a successful welfare evaluation program were described
in detail in a report from the Comptroller's office in 1997.(27)
Total funding for the Child
Care Block Grant increases $162 million to $622 million. The block
grant was created in 1997-98 and combines the public assistance,
transitional, at-risk, and State low income day care into one seamless
funding stream. The increase in the block grant is almost entirely
due to the transfer of $230 million in federal welfare block grant
funds. The increased funding is expected to support at least 13,000
new subsidies, bringing total subsidies to at least 138,000. This
estimate incorporates projected increases to rates prompted by the
market survey that is required by the Federal government.
In addition, $200 million from the federal welfare block grant is
set-aside to create a three year reserve fund to support child care.
Of this amount, $175 million would be allocated to local districts
and the remaining $25 million would be available, through a competitive
process, for other child care capacity building expenditures. The
amount allocated to the localities would be based in part on historical
child care costs, the availability of child care, and cost of child
care. Localities would only be eligible for these additional funds
if they had spent all the other sources of child care funding.
The creation of the child care reserve is a step in the right direction.
Although there are wide variations in the number of subsidies and
slots for child care, the creation of the reserve recognizes the
likelihood that further expansions will be needed. A recent audit
by the State Comptroller's Office found that better advance planning
was required by the agency to ensure adequate child care was available
to meet the new federal work requirements under public assistance(28)
The enacted budget includes a package of new tax cuts valued at
$58 million in 1999-00 and $375 million when fully implemented in
2003-04. The Executive Budget recommended $218 million in new tax
cuts for 1999-00, -$15 million in 2000-01,(29)
and $1.031 billion when fully implemented in 2003-04. The fully
implemented cost of additional tax cuts was significantly reduced
in the final plan. The cost of new tax cuts in the enacted budget
is approximately $160 million less than what was proposed in the
Executive Budget in 1999-00; $50 million more in 2000-01 and $42
million more in 2001-02; $656 million lower in 2003-04 when fully
Changes from Proposed Executive Budget
Budget New Tax Cuts
Budget New Tax Cuts
The centerpieces of the Governor's
proposed tax cut plan were: personal income tax reductions for middle-income
families; restructured, lower utility taxes; and rate reductions
for banks and insurance companies. The final package includes $150
million in rate reductions for banks and insurance companies so
that their tax rates conform to the rates for general corporations.
It does not include significant changes for utility companies or
middle-income personal income tax cuts. The enacted plan provides
an enhancement to the Earned Income Tax Credit (EITC), estimated
to reduce taxes by $125 million when fully implemented, designed
to provide tax relief to lower-income working families. With the
exception of the EITC, nearly all of the new tax cuts accrue to
The remaining $100 million is used for 25 different, small targeted
tax reductions that have questionable job creation potential.
The enacted tax package also includes a three month delay in implementation
of the sales tax exemption for clothing slated to become permanent
on December 1, 1999. Instead, there will be two temporary one-week
exemptions. The net result is $100 million in forgone tax savings
for shoppers in 1999-00. The combined impact of new tax cuts and
delayed tax cut actions included in this year's budget results in
a net loss of $42 million in taxpayer savings.
Cut Actions Included in the 1999-00 Budget
and Insurance tax rate cut
Income Tax Credit enhancement
of provider assessment tax cut
capital exclusions - utilities
Minimum Tax rate reduction
tax federal conformity
Business tax cut
wage credit enhancement
capital exclusions - financial
sales tax exemption
Capital Companies credit
reduction in the beer excise tax
income allocation adjustment
hardware sales tax exemption
productions sales tax cut
excess dividends tax cut
forwarder allocation adjustment
tax exemption for farm equipment
brewery tax exemption
self-use tax cut
income tax credit enhancement
and wrestling tax cut
fuel tax credit
sales tax exemption for clothing
sales tax exemption for clothing
Source: New York State Division
of the Budget, OSC estimates.
Highlights of the 1999-00
tax cut package
Bank and Insurance Tax Rate Cut. The current 9 percent
tax rate is reduced to 7.5 percent in three equal increments over
three years beginning with taxable years starting on or after July
1, 2000. This will conform these tax rates to those levied on general
Earned Income Tax Credit (EITC) enhancement. The enacted
budget increases the current EITC from 20 percent of the federal
EITC to 22.5 percent in 2000 and 25 percent in 2001. This refundable
credit is available to working families earning less than $30,095
annually. Federal welfare funds can finance this expansion because
EITC is counted as public assistance expenditures. See public assistance
section of this report for more details.
Acceleration of Provider Assessment Tax Cut. Provider assessments
will be sunset three months earlier than currently scheduled. This
will further reduce provider taxes by $55 million. However, a portion
of these assessments are reimbursable through Medicaid rates. The
estimated net impact on providers is $41 million. The Governor had
proposed a one-year acceleration.
Subsidiary Capital Exclusions
- utilities. For purposes of calculating the subsidiary capital
tax of the Article 9-A parent, capital of gas and electric subsidiaries
will be incrementally excludable. Beginning on or after January
1, 2000, 30 percent of subsidiary capital is excludable, which increases
to 100 percent beginning on or after January 1, 2001.
Alternative Minimum Tax (AMT) rate reduction. The corporate
franchise alternative minimum tax rate is reduced from 3.0 percent
to 2.5 percent for taxable years beginning after June 30, 2000.
Pari-Mutuel Tax cut. The tax rate on "on-track"
wagering will be reduced from an effective rate of 3.7 percent to
2.6 percent on September 10, 1999 and then to 1.6 percent on April
1, 2001. This will result in more funds available for the New York
Qualified Emerging Technology Companies (QETC) Credit enhancement.
The existing definition of QETC is expanded to include sole proprietorships,
partnerships, subchapter S corporations, as well as companies engaged
in the re-manufacture of printer, ink-jet and photo imaging cartridges
used in office equipment.
Estate Tax Federal Conformity. New York's estate law is
modified to conform with Federal tax law by expanding the protection
for estates containing closely held businesses and farms. This provision
allows estates comprised of closely held businesses to choose the
current State small business or the Federal deduction, whichever
provides the greatest tax benefit. The federal conformity legislation
generally applies to estates of decedents dying after 1997.
Petroleum Business Tax cut. The petroleum business tax
(PBT) rate on fuels used for commercial space heating is reduced
to approximately 1.5 cents per gallon of distillates and 1 cent
per gallon for residential petroleum products and eliminated on
fuels used for mining purposes starting April 2001. The dedicated
transportation funds, which receive certain PBT revenues, are held
EDZ/ZEA Wage Credit enhancement. The wage tax credit for
wages paid in economic development zones and zone equivalent areas
is increased from $1,500 to $3,000 for targeted employees and from
$750 to $1,500 for other individuals. The period in which taxpayers
may claim the ZEA wage credit is increased from two to five years.
The provisions take effect for taxable years beginning on or after
January 1, 2001.
Gas Importation Tax Cut. Natural gas imported for use in
generating electricity is excluded from the tax imposed on gas imported
Subsidiary Capital exclusions - Financial Services. Stocks
and indebtedness of subsidiaries are excluded from the definition
of subsidiary capital for purposes of the subsidiary capital base
Telecommunications Sales Tax exemption. The telecommunications
machinery and equipment sales tax exemption is expanded to include
machinery, equipment, and apparatus used or consumed in upgrading
cable television systems to allow for the receiving, processing
or transmission of telecommunications services. It also includes
such equipment and tools used in providing internet access for sale.
Delayed sales tax exemption for clothing. Clothing and
footwear priced under $500 was scheduled to be permanently exempt
from the sales tax beginning December 1, 1999. This implementation
will be postponed three months, thus increasing the sales tax on
clothing by $150 million compared to current law. This tax increase
will be partially offset by approximately $50 million attributable
to the two additional temporary sales tax-free weeks that were added.
Temporary sales tax exemption for clothing. Clothing and
footwear priced under $500 will be exempt from the sales tax the
week of September 1 - 7, 1999 and January 15 - 22, 2000.
Value of Tax Cuts Enacted Since 1994-95
Taxes and Fees
(STAR & NYC PIT)
Source: Division of the Budget
Value of Tax Cuts Enacted Since 1994-95
Taxes and Fees
(STAR & NYC PIT)
Source: Division of the Budget
The Governor recommended $288.8 million in actions that enhanced,
preserved, or increased revenue. The legislature rejected $121 million
of these actions. The enacted budget included $168 million of the
Executive's proposals. Lottery accounts for most of the difference
between proposed and enacted revenue actions. Authorization for
the Quickdraw lottery game expired on March 31, 1999 and was reinstated
on August 1, 1999. The four month lapse reduced State revenues by
approximately $50 million. Quickdraw is now set to expire on March
of Revenue Actions
existing Quickdraw game restrictions
additional surcharge on racing and wagering taxes
clerks retention fees
Manhattan parking provisions
the existing pesticide registration fees
the sunset on mandatory traffic surcharges
Services (commissary prices)
(clean air permits
and petroleum fee)(30)
(X-ray registration fee)
and Recreation (day use park fees, golf fees, pool admission
fees, cabin fees, empire passport charge)
The loss of these revenues
when compared to the Executive was largely "backfilled"
or covered by other revenue actions or spending reestimates.
A variety of provisions in
the enacted State budget affect local governments, including revenue
sharing and other state aid or reimbursement programs, as well as
changes in statute affecting local tax collections and mandates.
This year the extreme lateness of the budget made it very difficult
for local governments to plan. Federal programs and other events
also have an impact, such as this year's changes in the food stamp
program and the settlement with the tobacco companies. This section
of the report discusses municipal and county governments; school
districts are covered in the Education section.
Revenue sharing is an unrestricted intergovernmental aid program,
providing over $700 million to local governments (with the predominance
of the funding going to cities). The Executive had proposed a small
year-over-year increase in revenue sharing of $1.7 million. This
was the net result of changes in the distressed municipality aid
categories which were also rolled together within a single supplemental
aid category, under which increases were provided for the cities
of Buffalo, Canandaigua and Niagara Falls offset by reductions in
current emergency aid allocations for other local governments. The
enacted budget provides additional aid totaling $3.8 million in
the new supplemental category, restoring some of the reductions
proposed by the Executive, and providing an overall year-over-year
increase of $5.5 million.
In addition to this small increase, a speed-up in payment of aid
is provided for 14 cities, with the intention of providing temporary
"one-shot" relief totaling $98.7 million. The budget speeds
up payments from March to December in two installments in December
of 1999 and 2000, with the amounts accelerated for the year 2000
continuing to be paid on the schedule indefinitely. The legislation
states that the funds "shall be" for the entitlement periods
ending the preceding June or July. The purpose of this language
is to provide for a local fiscal year "spin-up" of revenues,
at least on an accounting sheet basis, to provide temporary or "one-shot"
fiscal relief; this would not occur otherwise, because the spin-up
of payments does not in actuality cross local fiscal years.(31)
Although the cities will receive accelerated payments applying to
two local fiscal years (ending in 1999 and 2000) the financial benefit
will be felt in the current year -- the previous year is already
over and any accounting change for that period will flow into the
current year either as a surplus or a reduced deficit.
There are substantial accounting issues involved with the approach
taken in the budget legislation that the Office of the State Comptroller
is now reviewing, and there is some question as to whether the "accounting
sheet" spin-up will work for all the cities scheduled to receive
it. In any event, local governments should understand that this
change is a financial manipulation that will not continue to provide
relief in future years. If a local government chooses to avail itself
of the spin-up by accruing the revenues, and applies them to recurring
annual needs, they will have an equivalent budget shortfall to address
in 2001-02. Although certainly many local governments may need fiscal
relief, there is reason to be concerned about using a gimmick such
as this to provide it.
It should also be noted that last year's statutorily convened revenue
sharing task force has apparently been disbanded without having
issued recommendations. This group was chaired by the Governor's
Budget Director and composed also of representatives from the Assembly,
the Senate, the Office of Real Property Services and the State Comptroller's
Office. The task force was charged with examining current revenue
sharing formulas and the general level of aid provided, as well
as with developing a new formula and reporting on or before December
31, 1998. The group's last meeting, scheduled for December 17, was
canceled by the Budget Director in a letter expressing regret that
the statutory deadline would not be met.
The task force had made progress reviewing the existing aid allocations
as well as in evaluating factors and approaches to use in a new
formula. However, there were stark differences among the members
about the general level of aid that could and should be provided.
The legislation creating the task force also provided that if a
new revenue sharing formula was not enacted by June 30, 1999 that
the provisions of the original revenue sharing statutes would return
to effect, raising aid by more than $2 billion. This provision was
removed in the enacted budget legislation. The act of simply dropping
this statutorily promised review without even any acknowledgment
tends to reinforce the public's lack of confidence in the State's
governing process. It is highly unfortunate that a topic as vitally
important as intergovernmental aid was treated in this manner.
Other Aid Programs, Reimbursements and Costs
The enacted budget:
- Allowed a variety of Medicaid
cost containment provisions to lapse for the first quarter of
the State's fiscal year (April through June), raising costs for
counties by $50.6 million (including $37.2 million for New York
- Eliminates recently enhanced
funding to counties for Medicaid managed care, lowering reimbursements
by some $34.4 million annually (including $21.7 million for New
- Enacts the Executive's proposal
for drivers license and registration centralization, an efficiency
measure which (despite an increase in the percentage of gross
fees county clerks keep for transactions they process) will reduce
county revenues by about $4 million annually.
- Enacts the Executive's recommendation
to end partial reimbursement to counties for housing low-level
felons in county jails at a cost of $25 million annually (including
$10.5 million for New York City).
- Increases CHIPS (Consolidated
Highway Improvement Program) operations and maintenance funding
by $2.6 million annually. The Legislature also restored proposed
cuts: $25.6 million in CHIPS capital funds, $4.7 million in Marchiselli
aid (representing the State matching share of federal highway
and bridge funding). These aid programs together provide approximately
$325 million in funds annually to local governments (primarily
municipalities other than counties).
- Adds $1.35 million to pick
up the full cost of the recent District Attorneys' salary increase.
- Allows local governments
to opt out of the permanent sales tax exemption for clothing each
year -- permitting governments that initially choose to participate,
but experience financial difficulties later, to then drop the
exemption. The starting date of the general sales tax exemption
was also delayed from December 1, 1999 to March 1, 2000 and two
new tax-free weeks were added (September 1-7, 1999 and January
- Adds a series of exemptions
to the sales tax (including telecommunications items, farming
equipment, and various vending, repair and maintenance services)
which upon full implementation will annually decrease local government
revenues by about $14 million.
Other issues affecting local
- Food Stamps -- changes at
the federal level, in combination with the State's approach, passes
the $63 million cost of administering the program to the counties
(including $40 million for New York City).
- Federal maintenance of effort
provisions for TANF (Temporary Assistance to Needy. Families)
will result in $75 million additional spending by counties in
the 1999-00 State fiscal year; this impact may grow in 2000 and
- Tobacco Settlement -- Counties
in New York State are expected to begin receiving their portion
of these funds by next year. The precise distribution is not yet
known (a detailed discussion of this issue can be found in the
Health and Social Services section of this report) but it is generally
expected that county governments will receive somewhere in the
area of $12-13 billion over the next 25 years (with New York City
receiving slightly more than half). The counties expect to receive
slightly more than $300 million in calendar year 2000.
The county governments have
vigorously objected to the additional costs that they are facing
as a result of the State budget, which they estimate to be $250
million annually (including New York City impacts). This figure
includes the increased costs occurring under the federal food stamps
and TANF programs, as well as the full annual eventual cost of the
miscellaneous sales tax exemptions and other changes. Although the
tobacco settlement itself provides good financial news for the counties,
the down side to this situation is that some State leaders are citing
it as justification for passing on increased costs to the counties.
Local Governments in Fiscal
Although most of New York State's local governments have been able
to deal successfully with mounting fiscal pressures during the past
decade, some have not, experiencing severe financial problems. Deficit
financing has been approved for a number of municipalities and in
several prominent cases, financial control boards have been put
in place to ensure that the structural imbalances creating the problems
The State Comptroller, in conjunction with the Governor, has proposed
legislation that is intended to promote fiscal stability among New
York State local governments. The legislation would provide an early
warning of fiscal stress, preclude the necessity of the entire Legislature
approving requests for deficit financing by passing such authority
on to a five member board appointed by the governor and legislative
leaders, provide a level of oversight by the State Comptroller for
local governments that are experiencing serious and recurring fiscal
stress, or are in default or imminent danger of default on debt
service and enable financing through the Municipal Bond Bank Agency
for those governments that are unable to sell their obligations
in the public debt market. This legislation was introduced, but
During this session, the State Legislature acted on several requests
to help specific local governments address financial problems:
- The Town of Babylon, and
the North Babylon and Potsdam school districts sought deficit
financing relief from the Legislature and had their bills approved.
- Nassau County sought authorization
to impose a one percent tax on real property transfers within
the county. This legislation was passed although only after much
deliberation about whether such authorization should be contingent
upon State oversight of county finances. The bill passed without
any oversight provision.
The continuing requests for
financial relief highlight the need for a comprehensive approach
to addressing fiscal stress among local governments. The budget's
response to Nassau County's fiscal problems -- adding a new tax
without any additional State oversight -- is only a stopgap solution.
The Comptroller's Office will continue to monitor the situation
in Nassau County but it appears that a stronger oversight mechanism
or supervisory board will be necessary to address the problems.
Changes to the Proposed Capital
and Financing Plan
The five year capital plan
submitted with the 1999-00 Executive Budget was a significant departure
from recent debt issuance and capital financing plans. In prior
years, the capital plan assumed a growing level of debt outstanding,
increasing debt service costs, and a shrinking share of capital
financed on a pay-as-you-go basis.
The Executive Budget five year capital plan proposed a $1.3 billion
increase in debt outstanding in 1999-00 followed by four years of
maintaining debt at about that year's $37.5 billion level. The prior
capital plan assumed a steady increase in debt, reaching $41.9 billion
in 2002-03. The reduction in new debt was proposed to be accomplished
by increasing the share of capital spending financed with cash.
Total capital spending remained at roughly the same level as the
The Governor is required to provide a revised five year capital
plan, reflecting changes made between the Executive Budget proposal
and enactment, on or before November 1, 1999. Preliminary analysis
indicates the net impact of changes to the proposed five year capital
plan increases capital spending by approximately $328 million. The
bulk of these additions will result in added State debt; however,
it is unclear how much of the new debt may be offset by using Local
Government Assistance Corporation (LGAC) capital reserves to defease
outstanding LGAC bonds.
Moreover, the Executive's original proposed reductions were made
possible by significantly increasing the amount of capital financed
in cash with State dollars, large projected increases in federal
funds, and use of a portion of the national tobacco settlement for
pay-as-you-go financing. It is unclear whether any of these assumptions
will materialize during the mutiyear period.
The enacted budget made significant changes to the debt and capital
portions of the Executive Budget. The net impact of the capital
additions was an increase of approximately $328 million in capital
spending, with the bulk of the additions resulting in higher State
Capital additions of $583 million include the following:
- $145 million for RESCUE
(REbuilding SChools to Uphold Education program). This program
will provide additional funding for school construction and
rehabilitation for instructional facilities.
- $95 million for the Jobs
2000 for New York State program (J2K). This includes $24 million
for the Department of Environmental Conservation for water pollution
control, $22.5 million for the Environmental Facilities Corporation
for Pipeline for Jobs program, and $47.5 million for the new
Office of Science, Technology, and Academic Research.
- $55 million for the housing
needs of the mentally ill. Of this amount, $50 million is to
be used for payment to municipalities or not-for-profit community
providers for acquisition of property, design, construction
and rehabilitation of housing for mentally ill persons. Eighty
percent of this funding is to be matched 50/50 with local governments.
These new resources are expected to support development of 900
community residential beds for mentally ill persons.
- $15 million for child
care facilities development. Funding will be provided for rehabilitation
or construction to establish, expand, or develop a licensed
child care center or registered school-age program which is
intended to serve the needs of low-income working families or
an area with demonstrated child care need. These new facilities
must be used as child care facilities for at least ten years
with an average of 25 percent of its available child care slots
set aside for low-income families.
- $15 million increase in
existing programs for affordable housing including: $3.5 million
for the affordable housing corporation, $1.0 million for housing
opportunities for the elderly program, $4.0 million for the
low income housing trust fund, $3.0 million for homes for working
families program, and $1.5 million for the public housing modernization
- $120 million for State
transportation programs. This reflects a faster pace of contract
awards ("letting levels") for state highway, parkway,
bridge, and NYS Thruway projects than provided for under the
- $30 million in restorations
for CHIP and Marchiselli. The Executive Budget had included
reductions in these local transportation programs that were
restored in the enacted budget.
- $8.3 million for the Olympic
Regional Development Authority for services and expenses related
to construction of a combined luge and bobsled facility.
- $25 million for Empire
State Development Corporation for costs related to economic
development, land acquisition and heritage trails.
- $75 million for pay-as-you
Community Facilities Enhancement projects. The Governor had
proposed reducing this program by $75 million; this was rejected
in the enacted budget. Although it does not change the total
funding for the program from last year it represents an addition
when compared to the Executive Budget and the associated capital
Capital reductions of $225
million include the following:
- $180 million in State
Funds for a third 750-cell maximum security prison. This proposal
also included the use of $80 million in federal funding.
- $75 million for development
of a secure youth facility.
The enacted budget included
a controversial language change that diverted Clean Water/ Clean
Air Bond Act monies from funding for small business compliance with
water pollution standards (water and wastewater infrastructure improvements)
to funding for new infrastructure for business ventures, with no
limitation on the size of the business.
The enacted budget includes an additional deposit of $250 million
to the Debt Reduction Reserve Fund (DRRF) as proposed by the Executive.
However, the Executive Budget proposed transferring this funding
to a special revenue fund. Instead, the funds will remain in the
General Fund. Since transfers to other funds are included in disbursements,
the Executive Budget "spent" the $250 million by transferring
it to the special revenue fund. By leaving the $250 million in the
General Fund with no planned spending for the current year, the
enacted budget now reduces General Fund spending by $250 million
in 1999-00 when compared to the proposed budget. Monies in the DRRF
will be used primarily to replace bond financing with pay-as-you-go
The enacted budget also includes plans to replace the current Local
Government Assistance Corporation (LGAC) capital reserves with a
surety bond. The reserves will then be used to defease outstanding
LGAC bonds. When completed, this is expected to reduce LGAC debt
by approximately $400 million. Although the details of this transaction
have not been fully developed, initial analysis raises questions
about whether or not the transaction will result in savings. Bonds
should not be redeemed unless there is net present value savings.
Without true savings, it appears the transaction would be done solely
to reduce the amount of debt for public relations purposes.
New Yorkers face one of the highest debt burdens and the lowest
credit ratings. In the past ten years, debt service on State-supported
debt has increased from 3.5 percent of All Governmental funds receipts
to 5.0 percent. Debt service is taking a larger and larger piece
of State revenues.
in Debt Service Compared to Receipts
(dollar amounts in millions)
All Governmental Funds Receipts
Total State-Supported Debt Service
Debt Service as a Percent of Revenue
Source: Annual Information
Statement, August 1999.
New York's state-supported
debt burden has increased from $760 per person in 1989-90 to an
estimated $2,064 per person in 1999-00. This debt represents over
6 percent of New York's personal income.
in State Related Debt
As a Percent of Personal Income and Per Capita
(dollar amounts in millions)
As a Percent of Personal Income
Source: Annual Information
Statement, August 1999.
New York's credit rating by Standard and Poor's and Moody's is the
second lowest in the nation, only Louisiana receives a lower rating.
In addition, New York has stayed at the bottom while other states
have been receiving improved ratings over the years.
and Poor's Ratings of State General Obligation Bonds (As
of May 1999)
Source: Standard and Poor's
Ratings of State General Obligation Bonds (As of May 1999)
Source: Moody's Investors Services
New York Compared to
According to a Moody's Investors Service report, 1999 State
Debt Medians, New York ranks among the top four of all states
in two measures of tax-supported debt burden:
- New York is fourth highest
in tax supported debt per capita, with Connecticut, Hawaii, and
Massachusetts the three states with heavier debt loads per person.
New York's per capita debt of $1,986 is nearly three times the
national average of $697.
- Per capita figures do not
account for differences in ability to pay for debt among the states.
A more precise measure relates debt to the total income of a state's
residents. New York ranks fourth in tax supported debt as a percentage
of personal income, with the same three states mentioned above
having higher burdens. New York's debt burden at 6.6 percent of
personal income was over two times the average level of all states.(32)
It is clear New York needs
to improve its debt condition. Although the Executive's proposed
capital plan addressed some of the symptoms of New York's weak debt
management practices, it did not address the underlying problems.
The significant improvements are not required by statute and could
be reversed at any point. New York continues to need permanent fundamental
reform of its debt practices.
Despite debt reform proposals also being introduced by the majority
and minority in both the Assembly and the Senate, the enacted budget
included no meaningful debt reform. The Comptroller introduced a
comprehensive package of debt reform legislation that would create
meaningful reform through statute, which could be enacted immediately
to limit new debt, and a constitutional amendment, which would provide
a permanent solution. Most of the improvements made to the current
capital plan are temporary in nature and could easily revert back
to less attractive plans.
The package of legislation proposed by the Comptroller would:
- Ban back-door
borrowing. The State would be prohibited from using
backdoor borrowing through public authorities to finance State
- Create a new form
of debt to replace back-door borrowing. This new type
of debt would be backed by a dedicated revenue source (to be
specified in future legislation). Because this debt would be
paid whether or not there is an appropriation, it should result
in lower interest rates and reduced borrowing costs.
The legislation creates two caps to limit debt: the first limits
new debt as a percent of personal income; the second cap limits
debt service as a percent of revenues. The two-pronged approach
will ensure that future debt is affordable. The capital plan
submitted with the 1999-00 budget significantly reduces planned
debt issuance. If these proposed debt levels are maintained,
the caps will not limit debt during the next five years. However,
based on the previous capital plan, the caps would have begun
imposing limits on new debt in 2001-02. The caps are designed
to eventually reduce debt outstanding to a level closer to the
- Cap debt.
All future General Obligation bonds and the new revenue debt
would be capped at 3.5 percent of state personal income; the
cap is cumulative and applies to all debt issued and outstanding
after the legislation is enacted.
If enacted through statute, the cap could take effect immediately
and would be fully phased in at 3.5 percent of personal income
in 2008-09. The constitutional amendment would take effect in
2002-03, and would be phased in by 2011-12.
The cap would provide a long-term approach to cutting New York's
debt -- currently at 6.2 percent of state personal income --
by almost 50 percent.
- Cap debt service.
No debt could be issued if the State's total debt service exceeded
5.75 percent of governmental funds receipts. In 1999-00, debt
service is projected to represent 5.0 percent of governmental
funds receipts. The previous capital plan would have resulted
in debt service reaching the cap in 2000-01.
- Limit debt to
capital projects. Debt could not be issued to finance
- Create a Debt
Management Board. This Board would set policy related
to debt management issues (such as refundings, debt structure,
credit enhancement) and set policy guidelines on the use of
debt for the capital budget. It would include the Governor,
Comptroller, Budget Director, Assembly Speaker and Temporary
President of the Senate.
- Require Public
hearings. The Governor would be required to hold public
hearings on the capital plan.
- Allow multiple
bond acts. Eliminates the existing prohibition against
multiple bond resolutions being placed on the ballot in a single
year to encourage more frequent use of GO debt and enhance public
report was prepared by the State Comptroller's
Office of Fiscal Research and Policy Analysis;
Sandra M. Shapard, Deputy Comptroller.
Contributors to this report were:
1. All funds
includes State funds plus federal funds. State funds is spending
from state imposed taxes, fees and other charges; State funds includes
dedicated funds, such as the Lottery. The General Fund contains
all state-imposed taxes and fees that are not dedicated to a specific
category would include community-based mental hygiene, local transportation,
and revenue sharing.
3. The publicly
reported figure of $170 million represented only the legislative
initiatives. When the Executive initiatives of $30 million are included
the total is $200 million.
actions include reductions to Executive proposals and further spending
5. The Executive's
preliminary estimate of the 2000-01 gap is $1.9 billion, without
any of the OSC adjustments. However, these estimates are not officially
revised until the next Executive Budget submission. No estimate
has been made by the Executive with respect to the 2001-02 gap.
The Executive estimate is approximately $900 million lower than
the OSC estimate primarily because it includes unspecified savings
and lower projections for education and legislative initiative spending.
OSC assumes continuing phase-in of LADDER, additional school aid
increases of $250 million annually, and reasonable inflation for
expense-based education aid.
education appropriations were increased by $62 million. Together
with the school aid appropriations this results in a State fiscal
year increase of $360 million above the Executive Budget. See this
report's financial overview section for a discussion of the continuing
costs of the school aid addition. Note: 9/1/99 State Education Department
reestimates show a $948.8 million school year increase, largely
due to decreased 1998-99 building aid estimates. This report uses
the aid estimates and computer runs presented with the enacted budget.
7. The LADDER
acronym stands for Learning, Achieving and Developing by Directing
Educational Resources. These programs, which include pre-kindergarten,
class size reduction and minor maintenance aids, were initiated
by the Assembly and enacted in 1997, along with the Executive's
STAR tax reduction proposal.
in the last three years the highest dollar increases in school aid
were provided, they did not represent the highest percentage increases.
For example, three aid increases during the 1980's were higher in
||School Aid Increase*
||*As estimated at the time of budget enactment
Division of the Budget
school aid tables and publications, including annual reports
entitled: Description of New York State School Aid Programs
9. The incentive
program was so unworkable as to have been eliminated in the Executive
Budget, with its focus on property tax limitations. However, the
new aid program duplicates existing high tax effort aid programs
(1999-2000 Final Budget Summary, N.Y.S. Council of School
Superintendents, August 1999).
1999-00 Budget Analysis, Review of the Governor's Proposed Budget,
Office of the State Comptroller (February 1999).
A. Chen, President of the Nassau-Suffolk School Boards Association,
writing in their monthly publication newsline (Volume No.
24, August 1999)
example, a controversy arose in the Greece school district because
it was acknowledged that the tax increase was larger than would
have been required had their State aid increase been known before
the tax warrant was issued. School Board Strife Accents Tax
Dilemma, Rochester Democrat and Chronicle, August 26, 1999.
amounts reflect only the cost of the property tax exemptions; including
the cost of a related State-funded income tax credit in New York
City, the program grows to $2.7 billion.
Budget Concerns SUNY, Albany Times Union, September 2, 1999.
a full discussion of these issues, see New York State's Community
Colleges: Cost-Effective Engines of Educational Access and Economic
Development, March 1999, Office of the State Comptroller.
figures for mandatory needs given here differ somewhat from those
used by the universities in their budget presentations. At CUNY
various member items (that were continued) account for the difference.
The SUNY figures for additional enrollments and sponsored research
were not included because they could arguably be considered program
increases rather than growth in mandatory costs.
certificates have been issued by the Budget Director since the master
certificate impounded $77 million on August 24. An August 27 certificate
revised the master certificate to allocate only 23.5 percent of
appropriated funds to cover the first quarter (an approach used
by the Budget Division for State agencies generally but which has
never before been applied to SUNY and is not being applied to CUNY).
A September 1 certificate increased the allocations to 100 percent
for all funds except those supporting SUNY's core academic budget
and hospital operations; the State's general fund support appropriation
remained at a 23.5 percent allocation and slightly more than half
of Special Revenue Fund 345 was allocated. The unusual imposition
of this type of quarterly, reduced allocation procedure by the Executive
may represent an attempt to temporarily mask the approach being
contemplated to fill the hospital deficit. There is no other understandable
explanation for its imposition on an independently governed university
system for which the Executive has previously proposed greater flexibility,
particularly at a time when State cash flow needs cannot be said
to be pressing. These actions have already caused significant administrative
problems at the campuses and the state level.
limits are set in Section 355 of the Education Law but modified
by certain language included in the budget legislation. The modifying
language has been included in budget bills since 1990 and provides
greater interchange flexibility than provided in the Education Law.
Although this modifying language was a subject of discussion at
the budget conference committee, in the end it was retained.
one cost containment measure that was allowed to sunset was the
home health care fiscal assessment.
is no impact on the Medicaid budget; however, General Fund miscellaneous
receipts will be reduced by $9.5 million.
it could be argued that notwithstanding the cap on provider assessments
deprives health care providers of planned rebates, the cap on assessment
collections has been consistently ignored since it was first created
and it does not represent any year to year change in policy.
Economic and Budget Outlook: An Update. Congressional Budget Office.
the Governor proposed only a modest reduction in the required family
CHIP premium contribution and an expansion in the services covered
by CHIP (vision, dental and mental health). According to a report
by the Office of the State Comptroller entitled Child Health Insurance:
Current Issues and Policy Options (June 3, 1998) the Governor's
plan left an estimated $650 million in available funding unspent
over the next six years.
24. A recent
audit by the Office of the State Comptroller found an estimated
41 percent of CHIP enrollees, 63,000 for the period covered by the
audit, appeared eligible for Medicaid. Office of the State Comptroller,
Management of Child Health Plus Program, Report 97-S-10, April 1998.
of the State Comptroller, An Update on the Evaluation of Welfare
Reform in New York State.
Nelson A. Rockefeller Institute of Government, After Welfare:
A Study of Work and Benefit Use After Case Closings.
of the State Comptroller, Evaluating Welfare Reform: A Proposal
for New York.
of the State Comptroller, "Child Day Care Planning under Welfare
Reform" (Report 97-S-50), October 19, 1998.
an aggregate basis, the tax changes in 2000-01 raise revenues. This
is due to timing an other effects of the proposed transition from
a gross receipts based tax (Article 9) to a net income based tax
the enacted budget included the proposed increase in the petroleum
per barrel fee, due to the late budget, the fee was not imposed
until August 9. This four month delay reduced revenue by about $4.2
City of Albany, which uses a calendar year fiscal year is an exception
because the acceleration of revenues from March to December results
in an actual cash basis spin-up.
Investors Service, 1999 State Debt Medians, March 1999.